After nearly eight years of consistent economic expansion, few
topics engage commercial real estate professionals more than
when the next recession will begin. Few if any expansions have
lasted this long, and the anticipation of its end has already started
governing plans for new development and investment.

More diversity within portfolios, especially by adding recession-proof properties such as student housing and self-storage, seems
called for these days. But recent moves by the Trump
Administration, including the launch of trade wars with China,
Canada and Europe, have added new and unexpected factors
that have to be considered along with anticipated ones such as
rising interest rates.

Some good news did come from the Bureau of Labor Statistics,
whose latest jobs report showed a still-healthy economy. The US
economy added 213,000 jobs in June, marking the 93rd consecutive month employers added to payrolls.

Cushman & Wakefield’s research director, Kenneth McCarthy,likens the economy’s run of job growth to “Joe DiMaggio’s hittingstreak. And like that streak, it may never be broken.”Though it’s difficult to predict month-to-month changes inemployment since so many variables are involved, he says that thecombination of the tax cut and generally high levels of consumerand business confidence make it likely that monthly job growthwill remain solid during the second half of 2018.

“We could see a one-month decline in employment sometimein 2019 as the unemployment rate continues to decline and theavailability of workers diminishes,” he concedes, “but it’s difficultto predict when that might happen.”For commercial real estate, the overall amount of jobs createdis certainly a positive. The level of acceleration in so far in 2018—215,000 per month compared to 182,000 in 2017—indicates anincrease in economic activity, which means more real estate isneeded, McCarthy notes. He particularly points to the employ-ment growth in office-using industries like financial services andprofessional services, which are averaging 58,000 per month thisyear, up from 47,000 in 2017.

In addition to the growth in positions that fill office space, Junesaw strong growth in the construction sector. McCarthy says thatsegment has been adding roughly
25,000 jobs per month in 2018, untilJune, when 13,000 new roles wereadded. “Since 2011, nearly 1. 8 millionconstruction jobs have been added tothe economy,” he explains. “These con-struction jobs reflect the other side ofthe commercial real estate sector,rising supply of office, industrial andmultifamily space coming to marketsacross the nation.”On a slightly negative note, heshares, retail employment fell by
22,000 jobs. “After declining in 2017,the retail sector has seen employmentgrowth in 2018, but it has been mod-est, reflecting the structural shifts thatsector is undergoing.”The broiling trade war, meanwhile,has been a growing issue in terms of theeconomy. Some $34 billion in tariffs onChinese imports recently took effect,with another $16 billion due to takeeffect in a few weeks. Initial US tariffs onChinese goods target auto parts, elec-tronic components, jet engine parts,compressors and other machinery.Further, the US is threatening to imposetariffs on more than $500 billion inChinese imports, resulting in an imme-diate counteract by China in the form ofduties on US shipments like soybeansand automobiles.

Thus far, the impact has been small
and the economy, like employment,
continues to perform well, McCarthy
states. Yet sustained rising trade tensions

Economic, Employment Report Positive for CRE

UP Front A comprehensive look at what’s trending in the world of commercial real estate

Downtown Cleveland has seen a lot of residential development in the past few years,
and it about to get a lot more. In a deal led
by KeyBanc Capital Markets Inc., the corporate and investment banking arm of
Cleveland-based KeyCorp, Cleveland-Cuyahoga County Port Authority expects to
issue approximately $80 million in bonds
for Playhouse Square, the largest performing arts center in the country outside of
New York, located in the
heart of Downtown.

About $50 million of the
tax-exempt bonds will help
to finance a portion of the
construction of Lumen, a
34-story tower housing about
318 apartment units, 530
parking spaces and 22,000
square feet of amenities. The
other $30 million will refinance existing debt tied to
Playhouse Square’s other
real estate and to prepay part
of a loan to finance renovations to the Idea Center
building on Euclid Ave.

“Lumen lights the waytoward the bright future ofPlayhouse Square,” says ArtFalco, president and CEO of PlayhouseSquare. “If you think about it, we’ve comefull circle from the days when the theatersalmost became parking lots. Now we’returning what was already a parking lot intosomething much more beneficial for ourneighborhood and for DowntownCleveland, which is really what PlayhouseSquare’s not-for-profit mission is about:driving economic vitality in the region.”Added Tim Kelly, directorat KeyBanc Capital Markets:“This unique financing—featuring both new moneyand refinancing—givesPlayhouse Square flexibilityas it continues to enhancetheaters and complimentarycommercial, residential andretail properties in the area.”Playhouse Square billsitself as the “world’s largesttheater restoration project”and the country’s largestperforming arts center out-side of New York. Since 1970,it has expanded core opera-tions while creating otherincome-generating venturesin the area.—Brian J. Rogal